Lender Ads, Rates Targeted : House Backs Tougher Rules on Equity Loans
The House on Monday approved a bill imposing a series of consumer protections on financial institutions offering home equity loans, which have soared in popularity because of the new income tax law.
The bill, approved by voice vote, prohibits misleading advertising and mandates that consumers get detailed descriptions of the loans before they pay any non-refundable fees, including the risk of losing one’s home if the borrower defaults.
The legislation also includes requirements that lenders base variable rates on publicly available indexes outside of their own control, and it prohibits them from requiring speeded-up payments unless the customer is at fault.
Rep. Frank Annunzio (D-Ill.), chairman of the consumer subcommittee of the House Banking Committee, said the measure was needed because people were rushing to use home equity loans because of their continued tax-deductibility.
They might be “the fastest growing craze since the Hula Hoop,” he said.
Banking Committee Chairman Fernand J. St Germain (D-R.I.) said the bill would also put “an end to carnival-type advertising that lures homeowners into deals they can’t afford.”
The bill was sent to the Senate, which has already approved similar legislation as part of broader banking legislation. The two chambers must agree on identical bills before the legislation goes to President Reagan.
An industry spokeswoman said bankers hoped to win changes in the bill before final passage.
“We support the concept of the bill . . . and we look forward to working with Congress to pass a bill that fully balances the needs of consumers and creditors,” said Mary-Liz Meany of the American Bankers Assn., who said her group considered the legislation too complex.
Surveys of banks and other lenders indicate that home equity credit lines have grown steadily over the past two years and are expected to grow another 40% this year, she said.
In 1985, the public owed $20 billion in home equity loans out of $150 billion in all second mortgages. By the end of 1987, there were $64 billion in equity loans out of about $200 billion in second mortgages, she said.
